Assume the following ROE=12%, b=.60 (so dividend payout ratio equals 40%), next years' earnings equals 10$ per share, cost of equity capital is 10% and next years' dividend per share is 4$ per share. Thus, all the numbers are consistent.

1. Calculate the PVGO.
2. What two inherent problems (discussed in class as Pitfalls) with P/E ratios is Shiller trying to correct?
3. I went over three possible reasons that have the possibility of explaining why

CAPE is so high, relative to its long run average and yet stocks are not overvalued. List and explain the 3 possibilities. One of the three may not be valuable any more as an explanation.